Winning in Managing Outside Counsel

By Robert Weiner|June 15, 2017 at 11:09 AM

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Some might think it presumptuous for an attorney in private practice, not in-house, to opine on how inside counsel can better manage outside counsel. But I was an in-house lawyer—sort of. I was in the White House Counsel’s Office. Granted, the analogy is a bit oblique. The job was not in the private sector. And we had only one law firm, the Department of Justice, with a very favorable fee arrangement (as in free). Still, I did have to learn how to manage the relationship. More on point, though, is my experience in the private sector as a member or leader of many teams that in-house lawyers have managed. For more than 30 years, I have observed from this vantage point what works and what does not. In my view, much of the folk wisdom on managing outside counsel is at best partially true, and important canons outside this anthology are ignored or used to less benefit than they could be. Here are some examples at both ends of this spectrum:

Maxim: Hire the lawyer rather than the law firm. Partially correct

In the first instance, in-house counsel should identify the individual marquee trial lawyer, appellate advocate, strategist, or other lawyer they want, and go for it. But it often will be difficult to seamlessly extract one lawyer from a firm. The lead lawyer will need backup from colleagues to do leg work, to help prepare her, to address her impromptu legal and factual questions as she delves into the case, and to handle a host of other issues within or related to her role. The best lawyers, moreover, are much in demand and face those annoying “can-only-be-in-one-place-at-a time” limits. Your selected counsel will likely need an understudy who, on short notice, can stand-in at less than pivotal points.

Sure, you can spread some of these functions to attorneys in different law firms (more on that below). But your marquee lawyer still will want routinely to turn to people she knows and trusts at her own firm to help her prepare. There are also practical limitations in dispersing these tasks, including the awkwardness of assigning associates at one law firm to work almost full time for partners at another firm, or the inefficiency of tasking someone halfway across the country to answer the lead lawyer’s “where in the record” question instead of letting her “Radar O’Reilly” across the hall intuit what she really wants.

So, by all means, hire the preeminent lawyer you want, but recognize that the depth of the bench at her firm matters. Assess that issue carefully, and have a plan to deal with it.

A corollary of the advice to hire the lawyer rather than the firm is to fill out the team by combining the best lawyers from multiple law firms to handle different aspects of the case. Such “virtual law firms” are a valuable innovation in complex, multi-forum litigation. They boost resources, expand the range of available experience and expertise, and, at least in theory, inspire some lawyers to “up their game” because competitors will be commenting on their work. But anyone who has built a real law firm will confirm that it is challenging. Building a virtual firm can compound the challenges.

Michelangelo carved the David out of a single block of marble. Had he used multiple blocks, he still might have produced a masterpiece, but probably would have lost some unity and coherence. The same is true in creating a virtual law firm. As useful as the construct is, the utility comes at a price. Lawyers of talent and good will, who are committed to the zealous representation of their clients, can lessen the centrifugal forces arising from cultural differences and competitive pressures among firms. Indeed, they have an ethical obligation to cooperate in pursuing your objectives. But to dispel the centrifugal forces entirely, as to all the lawyers involved, all the time, can be a formidable task. Beyond that, even with the most harmonious relations and the most assiduous efforts at integration, virtual law firms still pose two polar risks—silos at one extremity, duplication and confusion at the other.

By no means am I suggesting that clients abandon this model. It is extraordinarily useful, even indispensable, in many cases. But in-house lawyers should recognize that the relationships with and among outside counsel in such virtual firms require more active management, with rules of engagement that are crystal clear, yet adaptable as the case evolves.

Legal talent, substantive knowledge, and relevant experience of your outside lawyers are necessary, but not sufficient conditions for success in litigation or negotiations.

As regards necessity, it is crucial in most big litigations to seed the team with specialists in the relevant areas of law. In this era of hyper-specialization, lawyers in different subject areas practically speak different languages. Those uninitiated in the dark arts of a key specialty may miss nuances in regulations and case law, or they may plunge unawares into avoidable quagmires.

But hiring the top specialists is not sufficient to secure success. You also need lawyers with much broader experience. And the importance of such breadth increases with the level of responsibility the lawyer exercises in the case. The lawyers advising you on strategy, for example, must understand how decisions in the case at hand could affect other cases, as well as the company’s overall objectives. In addition, broad expertise and experience are essential to creativity. As Steve Jobs has observed, “Creativity is just connecting things”—seeing the links between apparently disparate subjects, extracting analogies from outwardly unrelated areas of the law, and grasping the policies underlying the legal rules applicable to the case. Overreliance on specialization makes it harder to identify such links, analogies, and policy-based arguments. It encourages silos, and increases the danger that “the vision thing” will receive inadequate attention.

Second, in addition to legal talent, substantive knowledge, and analogous experience, you should focus on another critical attribute when assembling a team of specialists from multiple law firms—compatibility. I stated above that lawyers of “talent and good will” should be able to curb the intrinsically divisive forces in a virtual team. But “good will” is critical. The dissension sowed by one self-seeking team member can undermine the efficiency and effectiveness of the entire representation. Clients need to recruit lawyers who “play well in the sand box.”

In seeking lawyers with the right mix of skill, expertise, and temperament, clients should not be captive to the law firms’ systems of seniority. Leadership and seniority are not the same thing. Hire the right lawyers—old, young, or ageless.

Determine your risks and objectives before you decide what you want to pay. Correct, but often ignored.

Defining your objectives and assessing your risks at the outset of the case is important. But you cannot stop there. Risks often change, or at least the assessment of them does, as discovery proceeds, courts rule, and other factors evolve. When risks change, objectives often change, too. It is crucial to reexamine both regularly.

Still, you cannot and should not avoid making some of these judgments at the start of the case. You need to address such threshold questions as: Is this case the leading edge of a spate of others? What would be the impact of an adverse result? Do the risks justify hiring elite lawyers, at an elite price? Is early settlement an option, or will it encourage more suits? If settlement is not an option, do we need to win every case? If it is an option, how do we reduce the value of the case? Doubtless, a host of other questions will arise from the particular circumstances of the client and the features of the case.

In determining, based on your threshold assessment, how much effort and expense to frontload in the case, keep in mind that it usually is easier and less costly to ratchet the effort and outlays down than up. Phasing in a smaller, specialized firm after the case has started to fizzle is probably more efficient than starting with the smaller, specialized firm and bringing in the big firm when the risks have escalated midway through discovery. First, the larger firm’s learning curve and integration into an ongoing case will cost more—the bigger jet needs a longer runway, particularly as more weight gets piled on. Second, such mid-case decisions to scale up often are accompanied by a level of panic that may not be conducive to efficiency. And third, such a switch midstream may communicate to the plaintiffs, the court, investors and others a mounting level of concern, which can engender its own costs.

That said, you cannot staff every case from the get-go as if it were an existential threat. The objective—easier to articulate than to implement—is to plan based on your level of risk tolerance. If the highest risk of an existential threat the company can stomach is 1 in 100, plan accordingly. If you can tolerate no more than a 1 in 20 risk of losing $1 billion, then that calculation should guide how you handle a case presenting the risk of such a verdict.

It may be no easier to determine your risk tolerance than to estimate the risk of the case, but trying to estimate both variables is a useful discipline. With appropriate cautions not to imbue a subjective decision with unwarranted scientific validity, I suggest that you consult with your risk management department (if you have one). After all, that department generally determines, based on actuarial assessments, what the company should pay to protect itself against all manner of catastrophic perils.

Finally, don’t assume without verifying that the big, high-profile firm will be too expensive. The case may be sufficiently important, the anticipated volume of work sufficiently high, the firm’s anxiety about its temporary excess capacity sufficiently acute, or the firm’s desire to build the relationship with you sufficiently strong, to yield a favorable fee arrangement. And, as suggested in the first article in this series, even when a firm appears nominally more expensive, if it proves itself skilled at finding the silver bullet to end a case, your overall expense may end up being far less than with a lower-cost provider.

Lawyers are professionals. Incentives created by fee arrangements are less important than ethical duties. More correct than you think, but foundational for effective management.

Billing by the hour inherently incorporates a perverse incentive towards inefficiency. The longer a project takes, the more a firm can bill for it. As economists will tell you, incentives matter, and that suggests clients with hourly billing arrangements should be vigilant in monitoring the work their lawyers are doing and what they are charging for it—but not so vigilant as to subvert the relationship with the firm or stifle their lawyers’ creativity.

In my experience over three decades working with lawyers from dozens of major firms, most attorneys representing business defendants in significant litigation take seriously their obligation, grounded in the duties of honesty and zealous representation, to spend the time fairly required—no more, no less—to accomplish the client’s objectives. Most attorneys similarly respect their obligation to bill for that time accurately. I am no Pollyanna. I know there are gougers out there. But I also know the competitive drive of litigators to please the client. And I know that in many respects, this is a buyer’s market. In that market, favorable results are great. Favorable results plus efficiency likely equals future work from the client.

Alternative fee arrangements, such as flat fees and fee caps, are one increasingly popular response to the open-ended nature of hourly billing. These types of fee arrangements can allocate to the law firm the risk of an overage, rather than imposing that risk on the client, as hourly billing does. Moreover, these arrangements can provide the client some certainty as to the likely cost of the litigation. Those are valid reasons to pursue such arrangements. But don’t pursue them to avoid the incentives for inefficiency presented by hourly billing. If your concern is negative incentives, these fixed fee or capped arrangements harbor their own array. For example, in theory, they can entice a firm to do too little work or to dole it out to the most junior lawyers as the ceiling on fees approaches. Whatever the arrangement, the client ultimately has to rely on the professionalism of its outside lawyers, their drive to win the suit, and their desire to satisfy the client and secure more of its work.

One key to ensuring that those checks work is communication—by the law firm to keep the client entirely up to date on what the firm is doing, why, and at what cost, and by the client, to ensure that the law firm understands the client’s expectations as to costs, level of effort, quality and deadlines. But perhaps most important is mutual trust—an understanding that both sides will agree to adjustments in the fee arrangement if circumstances change significantly, that outside counsel will share some risk with the company but also realize some potential upside, that outside counsel will consult with the client on all tactically and economically important decisions, and that surprises (at least unpleasant ones) are anathema to all involved.

A key management objective for in-house counsel is thus cultivating a trusting relationship with outside lawyers. This is not an easy objective to achieve, particularly in a sprawling, rapidly proliferating multi-forum case, but it is essential.

* * *

Years ago, one of my legal colleagues in the White House Counsel’s Office jumped at a much-coveted opportunity to travel with the President. Upon spotting the lawyer in his entourage, the President immediately asked, “What’s wrong?” The question exemplifies the burden defense lawyers shoulder. If we are not the bearer of bad news, we are the token of it, and on top of that, we charge handily for the privilege of this acquaintance. These circumstances do not intrinsically engender peace of mind and congeniality.

And yet, with professionalism and mutual trust, as well as skepticism for categorical prescriptions like those discussed above, many outside and in-house counsel not only develop efficient, productive professional relationships, but form fast friendships as well. That—plus, of course, results—is a big win in managing outside counsel.

Robert Weiner is a senior litigation partner at Arnold & Porter Kaye Scholer in Washington, D.C. From 2010-12, he was associate deputy attorney general in the U.S. Justice Department, overseeing the government’s defense of the Affordable Care Act. In 1997-98, he served as senior counsel in the White House Counsel’s Office.

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